A Cabinet meeting to draft measures on Monday evening ended without agreement after Mr Berlusconi's coalition allies in the Northern League party opposed raising the pension age to 67 years - a measure demanded by the EU.

Northern League leader Umberto Bossi said the disagreement on pension reform could bring down the government and force early elections.

"The government is at risk.," he said. "The situation is difficult, very dangerous. This is a dramatic moment."

He also added that If the government changed the pension system, voters "will slaughter us".

The worry is Italy's €1.9 trillion debt pile, which at 120pc of GDP leaves the country vulnerable.

Mr Berlusconi yesterday insisted that "no one has anything to fear" from Italy's debt and in a thinly disguised warning to France and Germany, he said: "No one is in a position to teach lessons to their partners."

The European Commission said the pressure on Italy was about trying to strengthen a member state's economy.

"This is not about challenging sovereignty, it's not about lecturing, it's not about humiliating," said Commisison spokesman Amadeu Altafaj.

"But at the same time we have 27 democratically elected sovereigns that have agreed on reinforcing surveillance and having a higher degree of coordination of their economic policies. It makes sense, it's one of the main lessons of this crisis, so one (country) doesn't affect another."

Meanwhile, a meeting of EU finance ministers ahead of a key summit meeting in Brussels tomorrow night has been cancelled.

After the summit meeting, EU leaders are expected to announce details of how to boost the firepower the EFSF – its bailout fund which currently stands at €440bn which is expected to be increased to €1 trillion.